Internationalization of family small and medium sized enterprises : impact of ownership, governance and top management team

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ETHIOPIA LEGESSE SEGARO

Internationalization of Family

Small and Medium Sized Enterprises

Impact of Ownership, Governance and Top Management Team

ACTA WASAENSIA NO 268

________________________________

BUSINESS ADMINISTRATION 107 MARKETING

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Reviewers Professor Jose Carlos Casillas University of Seville

Faculty of Economics and Business Sciences C/San Fernando 4

41004 Seville Spain

Professor Jarna Heinonen Turku School of Economics

Centre for Research and Education CRE FI–20014 University of Turku

Finland

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Julkaisija Julkaisuajankohta

Vaasan yliopisto Syyskuu 2012

Tekijä(t) Julkaisun tyyppi

Ethiopia Legesse Segaro Monografia

Julkaisusarjan nimi, osan numero Acta Wasaensia, 268

Yhteystiedot ISBN

Vaasan yliopisto Markkinoinnin yksikkö PL 700

65101 VAASA

978–952–476–414–8 ISSN

0355–2667, 1235–7871 Sivumäärä Kieli

168 englanti

Julkaisun nimike

Pienten ja keskisuurten perheyritysten kansainvälistyminen: Omistuksen, hallinnon ja johtoryhmän vaikutus

Tiivistelmä

Pienet ja keskisuuret perheyritykset (pk-perheyritykset) kansainvälistävät liiketoimin- taansa vakiinnutettuaan ensin asemansa kotimarkkinoilla. Tämä pk-perheyritysten näen- näinen ristiriitaisuus eli niiden pyrkimys ankkuroitua paikallisesti ja kuitenkin samalla toimia kansainvälisesti johdatti tutkimaan, mitkä pk-perheyritysten tyypilliset piirteet suhteessa omistukseen, johtoryhmään ja hallintoon määrittelevät niiden kansainvälisty- mistä.

Teoriakatsauksen pohjalta kehitettiin teoreettinen viitekehys, useita hypoteeseja sekä tutkimuksen käsitemalli. Hypoteeseja testattiin hyödyntämällä kahdeksankymmenen suomalaisen, kansainvälistä toimintaa harjoittavan, tehdasteollisuudessa toimivan pk- perheyrityksen kokemuksia. Tutkimuksessa käytettiin varianssipohjaista rakenneyhtälö- mallia (Structural Equation Modeling), PLS:ää.

Tutkimuksen empiirinen osa osoittaa, että perheen sitoutumiskulttuurin yhteys kansain- välistymisasteeseen oli negatiivinen. Stewardship-suuntautuneisuus oli odotusten mukai- sesti positiivisesti yhteydessä perheen sitoutumiskulttuuriin, johdon kokemukseen teolli- suudesta sekä johdon strategiseen joustavuuteen. Johdon strateginen joustavuus ja teolli- nen kokemus olivat lisäksi positiivisesti yhteydessä kansainvälistymisasteeseen. Tämän tutkimuksen pääanti auttaa osaltaan ymmärtämään omistajuuden ”pehmeämpää ulottu- vuutta”, esimerkiksi perheen sitoutumisen roolia pk-perheyritysten kansainvälistymises- sä. Toiseksi, tämä tutkimus edistää pk-perheyritysten kansainvälistymisen ja resurssipoh- jaisen teorian ymmärtämistä, koska sen tulokset osoittavat, että perheen sitoutumiskult- tuuri ja stewardship-asennoituminen saattavat sisäänpäin suuntautumisensa vuoksi toimia kansainvälistymistä vastaan. Toisaalta yhdistettynä johdon strategiseen joustavuuteen stewardship-asennoituminen on ulospäin suuntautunutta ja vaikuttaa myönteisesti kan- sainvälistymiseen. Kolmanneksi, stewardship-suuntautuneisuuden käsitteellistäminen ja sen empiirinen soveltaminen kansainvälistymiseen edistävät hallinnon ja ohjauksen teorian (governance theory) sekä kansainvälisen yrittäjyyden ymmärtämistä pk-perheyritysten kontekstissa. Tämä tutkimus ei edistä pelkästään teoriaa vaan tarjoaa suosituksia myös käytännön johtamistyöhön pk-perheyritysten kansainvälistymisen kehittämiseksi.

Asiasanat

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Publisher Date of publication

Vaasan yliopisto September 2012

Author(s) Type of publication

Ethiopia Legesse Segaro Monograph

Name and number of series Acta Wasaensia, 268

Contact information ISBN

University of Vaasa Department of Marketing P.O. Box 700

FI–65101 VAASA FINLAND

978–952–476–414–8 ISSN

0355–2667, 1235–7871 Number of

pages

Language

168 English

Title of publication

Internationalization of family small and medium sized enterprises: Impact of ownership, governance and top management team

Abstract

Family small and medium-sized enterprises (FSMEs) internationalize their business after consolidating their position in their domestic market. This seeming discrepancy in family SMEs of their propensity to be locally anchored while internationally active has prompt- ed this study to investigate what aspects typical to family SMEs in relation to ownership, top management team (TMT) and governance determine family SME internationalization.

Theoretical review was conducted in order to develop a theoretical framework, several hypotheses and a conceptual model for this study. Hypotheses were tested by utilizing 80 family SMEs involved in international activity from the manufacturing sector in Finland.

This study utilized the variance based structural equation modeling, PLS.

The empirical results of this study reveal that family commitment culture was negatively associated with degree of internationalization. As proposed, stewardship orientation was positively associated with family commitment culture, TMT’s industry experience, and TMT’s strategic flexibility. Strategic flexibility of TMT and TMT industry experience were positively associated with the degree of internationalization. The main contributions of this study pertain to increasing our understanding of the role of “softer dimension” of ownership such as family commitment culture on internationalization of family SMEs.

Secondly, it contributes to our understanding of the internationalization of family SMEs and resource based theory (RBT) as the finding suggests that family commitment culture and stewardship orientation may operate against internationalization because of their inward orientation. However, when coupled with the strategic flexibility of top management team, stewardship provides an outward orientation and positively impacts internationalization. Thirdly, by conceptualizing stewardship orientation and adapting it empirically to the internationalization context, it contributes to governance theory and international entrepreneurship of family SMEs literature. This study contributes not only to theory but also provides managerial implications for the development of internationalization of FSMEs.

Keywords

Internationalization, Family SMEs, Governance, Top Management Team (TMT),

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ACKNOWLEDGMENTS

Now that I have completed the journey of writing this PhD dissertation, I can look back with great satisfaction. When I began my research journey, the charting of this new path involved navigating interesting and challenging terrains. First and formost, I would like to thank God for giving me wisdom and guidance throughout my life.

I would like to thank my supervisor, Professor Jorma Larimo for supporting my research, conference activities, and other practical arrangements needed to com- plete this PhD dissertation. I would also like to thank Professor José C. Casillas, University of Seville, one of the pre-examiners of my PhD dissertation. I also would like to thank Professor Jarna Heinonen, University of Turku my second pre-examiner. My dissertation has benefited from their valuable comments. I would like to thank Professor José C. Casillas for accepting to act as the opponent to my dissertation.

I would like to express my gratitude to Professor Marian Jones, University of Glasgow, who has commented on so many versions of this work. I would like to thank her for her time, effort, and valuable comments. There are so many people, who have given me constructive comments on how to proceed with my dissertation in different conferences. I would like to thank Professor Antonella Zucchella, University of Pavia. There are also others at different conferences who have given me valuable comments, to name some of the conferences: International family enterprise research (IFERA), family enterprise research conference (FERC), and McGill conference on international entrepreneurship (Denmark). I would like to thank all of those who have given me feedback in these conferences.

I would also like to thank the international marketing group Professor Peter Ga- brielsson, Minnie Kontkanen, Saba Khalid, Johanna Hallbäck, Sami Rumpunen, Ahmad Arslan, Samuel Ato Dadzie, Tahir Ali, Markku Heiskanen, Alphonse Ak- lamanu, Wang Yi, Nnamdi Oguji and Helena Olsobo. I would also like to thank Henna Huovinen for her help in reviewing the questionnaire of this study and Tarja Salo for formatting this dissertation.

I would like to acknowledge the financial support from Finnish Graduate School in International Business (FIGSIB), Yksityisyrittäjäin Säätiö, Markus Wallenberg foundation and University of Vaasa (Department of Marketing) towards my research, conference participation and other dissertation related activities.

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Finally, I would like to thank my mother Mrs. Adanetch Kelbiso, my father, Mr.

Lapiso Segaro, my brother Paulos Segaro and my sister Genet Segaro for their support and encouragement. It meant a lot to me. Lastly, I would like to remem- ber my grandparents Mrs. Ada (Sedame) Hogego, Mr. Segaro Seleto, and Mrs.

Ashame Nademe for the example of faith in God, hard work and perseverance they have laid down for me.

Vaasa, August 29, 2012

Ethiopia L. Segaro

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Contents

ACKNOWLEDGMENTS ... 7

1 INTRODUCTION ... 1

1.1 Background of the Study ... 1

1.2 Research Gap ... 4

1.3 Research Question and Research Objectives ... 11

1.4 Definitions of Key Terms ... 14

1.5 Positioning and Contribution of the Study ... 14

1.6 Scope of the Study... 22

1.7 Structure of the Dissertation ... 23

2 THEORETICAL REVIEW ON INTERNATIONALIZATION OF FAMILY SMALL AND MEDIUM SIZED ENTERPRICES ... 25

2.1 Literature Background ... 25

2.2 Internationalization of SMEs ... 29

2.2.1 Internationalization theories and approaches ... 30

2.2.2 Critique on the theory of the internationalization of SMEs ... 41

2.2.3 Internationalization of FSMEs ... 43

2.3 Internationalization of SMEs and Strategic Management ... 45

2.3.1 Resource based theory of the firm and internationalization of SMEs ... 46

2.3.2 Familiness and internationalization of FSMEs ... 51

2.3.3 Top Management Team and Internationalization of FSMEs ... 53

2.4 Governance and Internationalization of Family SMEs ... 54

2.4.1 Governance in SME context ... 54

2.4.2 Stewardship Perspective ... 56

2.4.3 Stewardship Orientation and FSMEs ... 57

2.4.4 Stewardship orientation and internationalization of FSMEs ... 58

2.5 Organization Culture and Internationalization of FSMEs ... 59

2.5.1 Organizational culture and FSMEs ... 60

2.5.2 Organizational commitment and FSMEs ... 61

2.5.3 Family commitment culture and degree of internationalization... 63

2.6 Summary of Theoretical Discussion ... 64

3 OWNERSHIP, GOVERNANCE AND TMT IN INTERNATIONALIZATION OF FAMIY SMES ... 67

3.1 Family Commitment Culture and Internationalization of FSMEs ... 67

3.2 Stewardship Orientation, Family Commitment and Top Management Team ... 69

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4 RESEARCH METHODOLOGY ... 77

4.1 Research Strategy ... 77

4.2 Data collection ... 77

4.2.1 Population and sample... 78

4.2.2 Questionnaire Development ... 79

4.2.3 Response pattern ... 80

4.3 The Variance Based Structural Equation Modeling: The PLS Approach ... 81

4.3.1 Description PLS path modeling ... 82

4.3.2 Assessment of the Structural Model ... 84

4.4 Construct Operationalization ... 86

4.4.1 Measures of the Independent variable ... 86

4.4.2 Measures of the dependent variable ... 92

4.4.3 Control variables ... 92

4.5 Reliability and Validity ... 93

5 RESULTS ... 98

5.1 Descriptive Statistics of the Sample firms ... 98

5.1.1 General Characteristics... 98

5.1.2 Characteristics of Foreign Operation of the Firm ... 99

5.2 Validating the Measurement model ... 99

5.3 Validating the Structural Model ... 101

5.4 The Relationship between Ownership, Governance, and TMT ... 102

5.5 Ownership, TMT and Degree of internationalization ... 103

6 DISCUSSION AND CONCLUSIONS ... 108

6.1 Summary and Findings of the Study ... 108

6.2 Theoretical and Empirical Contributions of the Study ... 113

6.3 Limitations of the Study ... 115

6.4 Managerial Implications ... 117

6.5 Policy Implications ... 119

6.6 Directions for Future Studies ... 121

REFERENCES ... 123

APPENDICES ... 149

Figures Figure 1. Theoretical positioning of the study ... 16

Figure 2. The focus of the current study ... 21

Figure 3. Structure of the dissertation ... 24

Figure 4. The three-circle model of family business (Source: Gersick, Davis, McCollom & Lansberg 1997: 6) ... 26

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Figure 5. The three-dimensional development model (Source: Gersick,

Davis, McCollom & Lansberg 1997: 17) ... 28

Figure 6. The basic mechanism of internationalization: State and change aspects (source: Johanson & Vahlne 1977: 26). ... 33

Figure 7. The business network internationalization process model (the 2009 version) (Source: Johanson & Vahlne 2009: 1424) ... 40

Figure 8. The relationship between traditional “strength-weakness- opportunity-threats” analysis, the resource based model, and model of industry attractiveness (Barney 1991: 100). ... 48

Figure 9. Stewardship Orientation in FSMEs... 58

Figure 10. Organizational commitment in the FSME context – Family Commitment Culture ... 64

Figure 11. Conceptual model of the study: The role of ownership, governance and TMT on the internationalization of family ... 76

Figure 12. Structural (inner) model of this study ... 83

Figure 13. Measurement (outer) model of this study (including the latent variables) ... 85

Figure 14. Hypotheses of this study... 96

Figure 15. Findings on stewardship orientation, family commitment culture and TMT strategic flexibility and TMT industry experience ... 102

Figure 16. Findings on ownership and TMT on the degree of internationalization... 103

Figure 17. The empirical model of the internationalization of FSMEs ... 104

Figure 18. Outward orientation in FSME internationalization... 111

Figure 19. Inward orientation in FSME Internationalization ... 113

Tables Table 1. Definitions of key terms of this study... 15

Table 2. Focus of past studies on the internationalization of FSMEs ... 17

Table 3. Target population and sample size ... 79

Table 4. Effective response rate ... 80

Table 5. Measurement of family commitment culture ... 88

Table 6. Measurement of strategic flexibility ... 89

Table 7. Measurement of stewardship orientation – Employee orientation ... 90

Table 8. Measurement of stewardship orientation-Customer orientation ... 91

Table 9. Measurement of stewardship orientation-Long-term orientation ... 91

Table 10. List of hypotheses ... 97

Table 11. Combined loadings and cross-loadings of the modified measurement model ... 100

Table 12. Composite reliability and Average Variance Extracted (AVE)... 101

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Table 13. P coefficients and p values ... 101 Table 14. Hypotheses and Results ... 107

Abbreviation CMO

DOI EIA EMO FA FB FCC FDI FS FSz FSME FSTSR GSR IB LTO OCo OCu OECD PLS RBT sfTMT SME SO TMT TMThe TMTie Tsf

Customer orientation

Degree of internationalization

Employees that spend 50% of their time in international activity Employee orientation

Firm Age Family business

Family commitment culture Foreign direct investment Foreign sales

FSz

Family small and medium sized enterprises Foreign sales to total sales (Ratio)

Geographic Scope International business Long-term orientation Organizational commitment Organizational culture

Organization for Economic Co-operation and Development Partial Least Squares

Resource based theory Strategic flexibility of TMT

Small and medium sized enterprises Stewardship orientation

Top management team

Top management team heterogeneity TMT industry experience

strategic flexibility (total)

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1 INTRODUCTION

1.1 Background of the Study

Small and medium-sized enterprises (SMEs) play an important role in most ad- vanced economies of the world. In these economies, SMEs account for 95% of manufacturing enterprises and two-thirds of private sector employment and are the main creators of jobs (OECD 2005). According to the definition of EU, companies classified as SMEs are those companies with fewer than 250 employees and with an annual turnover of up to 50 million euro, or a balance sheet total of no more than 43 million Euros (EC 2003). It is also estimated that in the enlarged EU consisting of 25 countries, SMEs account for 99% of all enterprise (SME Us- er Guide 2005). All these evidences from several studies conducted show the importance of SMEs in the economies of countries worldwide.

Family firms, in general, represent the majority of all businesses worldwide (e.g.

Shanker & Astrachan 1996; Gersick et al. 1997; Astrachan & Shanker 2003; IF- ERA 2003; Casillas et al. 2007) but until recently were under-represented in scholarly research (e.g. Sharma, Chrisman, & Gersick 2012). Several studies report that family small and medium sized enterprise (SMEs), in particular, represent the majority of SMEs worldwide (Shanker & Astrachan 1996; Astrachan &

Shanker 2003; IFERA 2003; Casillas et al. 2007). Despite the fact that the majority of firms worldwide are family firms, family firm focus has often been relatively neglected (Casillas & Acedo 2005; Voordecker et al. 2007; Dyer & Dyer 2009;

Segaro 2012). Several researchers suggest that not taking into account the family in family business research can lead to incomplete and misleading findings (Voordecker et al. 2007; Sciascia et al. 2012; Dyer & Dyer 2009; Segaro 2012).

For example, previous studies report mixed results regarding the influence of family ownership and management on performance and the degree of internationalization (Voordecker et al. 2007; Sciascia et al. 2012; Dyer & Dyer 2009; Scias- cia et al. 2012, Segaro 2012).

Internationalization of the firm remains as one of the most extensively researched topic in international business (IB) literature (e.g. Keupp & Gassmann 2009;

Jones et al. 2011). Within this stream of research, several studies have focused on internationalization of SMEs (e.g. Coviello & McAulley 1999; Bell, McNaugh- ton, Young & Crick 2003; Chetty & Campbell-Hunt 2003; Coviello & Jones 2004; Clercq, Sapienz & Crijns 2005; Papadopoulos & Martín 2010). However, IB researchers seem to have neglected the role of the family involvement in own-

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Menéndez-Requejo 2005; Fernández & Nieto 2005, 2006; Graves & Thomas 2006, 2008; Casillas et al. 2007; Larimo 2011; Segaro 2012). Family business (FB) literature has not paid enough attention on how and why some FSMEs continue to renew their strategy (Hall 2003) by internationalizing their business abroad (Prashantham 2008), while other family businesses (FBs) do not.

The paucity of research on FB internationalization in general may be partly due to assumptions that they are not well suited to the uncertain and risky process of internationalization based on evidence that they are risk averse, conservative, non-growth oriented, conflict riddled, and may attach lower importance to the creativity and innovation of their business (e.g. Donckels & Frölich, 1991; Kets de Vries 1993; Miller, Breton-Miller & Schonick 2008). Examining internationalization of FSMEs, however, will help us to identify the typical behavior of FSMEs that allows them not only to survive but may increase their business activities abroad. In addition, it will also help us unlock what may restrict the internationalization of FSMEs.

The main question of strategy is: why do some firms perform better than other firms (Nelson 1991: 64). In FB literature, when we take the stagnation view (Mil- ler, Breton-Miller & Scholnick 2008), FBs are extensively characterized as risk averse, conservative, resistant to change, less growth oriented, less innovative, resource starved, conflict riddled, with misguided family objectives, nepotism and cronyism (Donckels & Fröhlich 1991; Kets de Vries 1993; Miller et al. 2008).

Why FSMEs lag behind from their non-family counterparts in their internationalization was usually attributed to these often cited shortcomings.

But another stream of research is emerging that looks at family ownership and management as a resource (e.g. Habbershon & Williams 1999; Chrisman, Chua &

Steier 2005). More specifically, FB literature has begun to assess the strategic advantages of family firms by utilizing the resource-based theory (RBT) of the firm for achieving competitive advantage (e.g. Habbershon & Williams 1999;

Ensley & Pearson 2005). Sirmon and Hitt (2003) suggest that FSMEs are different from non-FSMEs due to their unique resources such as survivability capital, patient capital, social capital, human capital, and governance structures (Segaro 2009a,b). Danes et al. (2009: 201) argue that Sirmon and Hitt's (2003) conceptualization of survivability capital as an integration of human, social and financial capital, can be taken as one type of social capital similar to resilience capacity.

This leads us to the question as to why some FSMEs are able to continue to expand abroad while others do not or at times even cease to exist.

Though, strategic flexibility can be valuable to all firms; it can be a key source of competitive advantage for family firms leading to success, resilience, and expan-

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sion abroad (Zahra et al. 2008). Strategic flexibility can be defined as the degree to which firms react to opportunities and threats within their competitive environment (Barringer & Bluedorn 1999; Zahra et al. 2008). Strategically flexible FSMEs can be involved in a flexible and proactive continuous capability development, which can allow them to effectively realize opportunities and manage threats in their competitive environment. They can also reinvent them-selves and overcome barriers to change and be able to develop multiple sources of competitive advantage (Hamel & Valikangas 2003: 55; Reinmoeller & Baardwijk 2005:

61). In one of the earlier studies in internationalization of family firms, Gallo and Sveen (1991) suggest that the company culture of the FB can be taken as a basis for strategy formulation and implementation. Thus, it is argued in this study that FSMEs with strategically flexible top management team may not only cope but may expand abroad. Westhead et al. (2001) confirm that specific industry know- how is a strong predictor of the firm’s ability to export. We can then assume that TMTs who are strategically flexible with industry experience are more likely to internationalize their business than others.

Organizational culture literature suggests that founders/owners of organizations create organizational culture (Shein 1995). What type of organizational culture then allows the development of strategic flexibility and industry experience in top management teams in FSMEs, which could subsequently enable them to pursue entrepreneurial activity such as internationalization? Organizational culture can be defined as the pattern of basic assumptions that a given group has invented, discovered, or developed in learning to cope with its problems of external adaptation and internal integration, a pattern of assumptions that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems (Schein 1995: 222). In strategic leadership literature, the leading coalition or top management team (TMT) are found to influence organizational outcomes (Hambrick

& Mason 1984; Carpenter, Geletkanycz & Sanders 2004; Hambrick 2007).

Though, organizational culture can be a source of competitive advantage but it can also become a source of competitive disadvantage (e.g. Kets de Vries 1993).

Organizational culture can also be perceived as a resource that FSMEs may mobi- lize effectively (Habbershon & Williams 1999), if it triggers strategic flexibility (Zahra et al. 2008) inTMTs of FSMEs to pursue opportunities abroad.

In contrast, in a FB context, organizational culture may also serve as a reservoir of tradition that has worked well in the past providing them with the needed stability in a constantly changing and increasingly complex economic environment.

This aspect, however, can inhibit growth both domestically and abroad. Empirical

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findings in the internationalization of FSMEs suggest that FSMEs lag behind non- FSMEs in their internationalization (e.g. Graves & Thomas 2006; 2008).

In FSMEs, whereby ownership and management are not usually separated, stewardship theory which explains governance in FBs (Miller & Breton-Miller 2005;

Miller et al. 2008; Eddleston & Kellermanns 2007; Zahra et al. 2008) has been increasingly utilized to explain behaviors of successful firms with top managers not pursuing their self- interest as in agency relationship (e.g. Fama 1980; Fama

& Jensen 1983; Eisenhardt 1989; Clarke 2004; Huse 2000; 2007) but behaving pro-organizationally (Davis, Schoorman & Donaldson 1997; Eddleston & Kel- lermanns 2007; Miller et al. 2008). Miller et al. (2008: 53-57) conceptualize stewardship where there is unusual devotion to the continuity of the business.

Secondly, there is more emphasis placed in nurturing of a community of employees. Thirdly, there is a seeking out of closer connections with customers to sustain the business. In this study, based on Miller et al.’s (2008) conceptualization of stewardship, stewardship orientation can be defined as an orientation reflected in customer orientation, employee orientation, and long-term orientation in FSMEs.

While stewardship orientation if coupled with strategic flexibility can be taken as potentially contributing to an outward orientation in FSMEs, but with family commitment culture, it can be seen as potentially contributing to inward orientation. The next section provides the research gap in the extant FSME internationalization literature.

1.2 Research Gap

In FB literature, the most commonly researched areas are ownership, management, governance and succession (e.g. Westhead, Howorth & Cowling 2002;

Chrisman, Chua &Steier 2005; Chrisman, Kellermanns, Chan & Liano 2010). In large firms, ownership and management are more clearly separated. In contrast, in most SMEs ownership and management are not separated and most SMEs are closely held (Schulze et al. 2001; Schulze, Lubatkin & Dino 2002, 2003;

Westhead et al. 2002). Relatively little is known about the relationship between FSME's ownership, governance, top management team (TMT) and internationalization (IFERA 2003; Casillas et al. 2007; Zahra et al. 2007). The upper echelon theory suggests to us that we may need to look at the dominant coalition of organization, in particular, the top management team to partly predict different strategic organizational outcomes (Hambrick & Mason 1984; Gersick et al. 1997; Tihanyi et al. 2000; Hambrick, Finkelstein & Mooney 2005; Hambrick 2007; Segaro 2012).

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Though there has been increasing research in IB literature regarding internationalization of SMEs, there is a paucity of research on FB internationalization (e.g.

Menéndez-Requejo 2005; Fernández & Nieto 2005, 2006; Graves & Thomas 2006, 2008; Casillas et al. 2007; Larimo 2011; Segaro 2012). Thus, there is a need to examine FSME internationalization. This is because FB literature finds that FBs are different from their non-FB counterparts (e.g. Sirmon & Hitt 2003;

Carney 2005; Chrisman, Chua &Sharma 2003; Danes, Stafford, Haynes & Ama- rapurkar. 2009). In the extant literature, what makes a FB different from a non-FB is considered to be the involvement of the family in the ownership and management of the business (e.g. Handler 1989). Chua, Chrisman and Sharma (1999: 22) argue that what makes a FB unique is the pattern in which ownership, governance, management and succession substantially influences firm's goals, strategies, structure and the manner in which each is formulated, designed and implemented.

Chrisman, Chua and Sharma (2003) state that a FB exists because of the recipro- cal economic and non-economic value created through a combination of the family and the business systems. They suggest that the confluence of these two systems lead to hard-to-duplicate capabilities or "familiness" that makes family firms suited to survive and grow.

Familiness of the firm can be defined as the summation of the resources and capabilities in a given firm (Habbershon & Williams 1999: 11). Familiness also explains the nature of family influence on performance outcomes (Habbershon &

Williams 1999; Habbershon, Williams & MacMillan 2003). The specific familiness that is the bundle of resources and capabilities in a given firm provides a potential differentiator for firm performance. The interaction between individual family members, the family unit, and the business is expected to lead to systemic synergies, known as distinctive familiness with a potential to create competitive advantage for the firm (Chrisman, Chua & Steier 2005: 238). It may also lead to diseconomies, known as constrictive familiness, with the potential to create competitive disadvantage for a firm (Chrisman, Chua & Steier 2005: 238). The FB dynamics may also create the environment to develop stewardship orientation in the FSMEs (Zahra 2003; Segaro 2009a,b, 2012; Sciascia et al. 2012).

Similarly, Sirmon and Hitt (2003) point out that a family firm's uniqueness arises from the integration of the family and the business life. The integration of the family and the business life creates several salient and unique characteristics. As mentioned earlier, Sirmon and Hitt (2003) suggest five unique characteristics that can differentiate family firms from non-family firms: human capital, social capital, survivability capital, patient capital, and governance structures. They further contend that resources by themselves will not produce sustainable competitive advantage, but that a resource should be managed appropriately to produce value.

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They point out that these five major resources and unique attribute of family firms that differentiate them from their nonfamily counterparts can also be seen as providing them with an entrepreneurial spirit. Sirmon and Hitt (2003) describe the profile of these family firms as entrepreneurially led family firms (Davis & Har- veston 2000), and high performing firms (e.g. Upton, Teal & Felan 2001). These firms are differentiated by their desire for growth and wealth creation (Sirmon &

Hitt 2003).

Furthermore, in his study on corporate governance and competitive advantage in family controlled firms, Carney (2005) examined different governance structures such as managerial governance, alliance governance and family governance. Car- ney (2005) argues that family controlled firms' competitive advantage arises from their system of corporate governance. Corporate governance system consists of incentives, authority patterns, and norms of legitimating. This governance system may produce organizational propensities, which in turn, may lead to competitive advantages/disadvantages. According to Carney (2005), family controlled rights over firm's assets generates three dominant propensities namely parsimony, personalism, and particularism. These three dominant propensities may give rise to advantages under scarce resource environment, facilitate the creation and utiliza- tion of social capital and engender opportunistic investment processes (Segaro 2009a,b; 2012).

Parsimony refers to the propensity that stems from the family firm's making strategic decisions such as resource deployment decisions with the family's personal wealth (Carney 2005: 253; Chrisman, Chua & Steier 2005: 240). This is attributed to the unification of ownership and control in family firms resulting in interest alignment, which may in turn reduce agency costs. Thus, family firms can be seen as possessing a strong incentive to ensure that capital is deployed carefully and prudently allowing resource conservation and allocation (Carney 2005: 253;

Chrisman, Chua & Steier 2005: 240). Personalism stems from the intertwinement of ownership and control in family firms. This aspect in family firms usually con- centrates and incorporates organizational authority in the person of owner- manager or the family (Carney 2004: 254; Chrisman, Chua & Steier 2005: 240).

As a result, owner-managers are able to operate under fewer internal constraints due to the exemption from internal bureaucratic constraints. In addition, owner- managers are less subject to external constraints pertaining to accountability, dis- closure, and transparency, which may allow them to personalize authority in order to pursue their vision (Carney 2004: 254; Chrisman, Chua & Steier 2005: 240).

Particularism results from the propensity to personalize authority and stems from the tendency of owner-mangers viewing the firm as "our business" (Carney 2005:

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255; Chrisman, Chua & Steier 2005: 240). Family control rights allow the family owners-manager not to be encumbered by authority fragmentation and thus to intervene in the activities of the family firm with "particularistic", more flexible criteria (Carney 2005: 255; Chrisman, Chua & Steier 2005: 240). These three propensities identified by Carney (2005) in family governance system, besides other earlier mentioned factors such as human capital, social capital, survivability capital, patient capital (Sirmon & Hitt 2003), differentiate between family and non-FB. A FB is, thus, distinct from non-FB due to these unique resources and capabilities that accrue to it from the family involvement in ownership, governance, and management.

It is argued in this study that these unique FB characteristics may have implications on how FSMEs, conduct their business including how they expand their business abroad. How then can we identify the degree of familiness in family firms that result in distinctive/constrictive familiness? Ensley and Pearson (2005) point out the challenge and complexity of identifying the degree of familiness in family firms. They argue that it is within the complex web of social involvement and interactions embedded in the social structure of the family that the advantages of the family form of organization can be identified. Even though, the difficulty of capturing familiness concept has been pointed out, empirical evidence suggests that there is a difference between family and non-family firms when FBs were viewed in relation to their "familiness" in ownership, management, and in their intention of succession (trans-generational sustainability) (e.g. Chrisman, Chua &

Steier 2002; Andersen & Reeb 2003; Segaro 2009a.b, 2012) and the role of familiness in FB success (e.g. Tokarczyk, Hansen, Green & Down 2007; Segaro 2009a,b, 2012).

If the degree of familiness is tied with the social structure of the FB, it would thus become important to identify what type of culture, orientation(s) and tendencies could engender and strengthen the distinctive familiness in FB while mitigating constrictive familiness in FSME internationalization. It is argued in this dissertation that the distinctive familiness with the potential to create competitive advantage for the FB, may also affect the internationalization of FSMEs. It is also important to note that certain conditions in FBs may prompt constrictive familiness with the potential to create competitive disadvantage for family firms (Chrisman, Chua & Steier 2005: 238, Segaro 2009a,b, 2012).

According to Miller et al. (2008) based on the stagnation view of FB, for instance, FBs can become risk averse, less growth oriented, conservative, and less innovative (Donckels & Fröhlich 1991; Miller et al. 2008). On the other hand, when taking the stewardship perspective, stewardship orientation can be manifested in a

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care for continuity of the business (long-term orientation), the building up of community of employees (employee orientation), and maintaining consistency in customer relationship (customer orientation). It is suggested in literature that stewardship can be strongly manifested in small business context (Miller et al.

2008). Thus, the degree of familiness and the level of stewardship orientation in SMEs context and how FSMEs behave in their strategic decision making process (flexibly or rigidly) will help us unlock not only variance in firm performance in general among FSMEs but also variance in their level of internationalization (Segaro 2009a,b, 2012). In recent studies, stewardship has been found to differentiate between those who are entrepreneurial and not entrepreneurial in FBs (Ed- dleston et al. 2012). Chrisman, Chua and Steier (2005: 238) state that questions about how ownership, management, and trans-generational intentionality interact to create characteristics unique to family organizations have not yet been an- swered, nor are the answers to questions concerning the types of familiness, both distinctive and constrictive, that emanate from those characteristics fully appar- ent. Heeding to their call, this study aims to explore ownership (family commitment culture), governance (stewardship orientation), and top management team related factors and their contribution to internationalization of FSMEs.

Despite the presence of a large number of studies on the internationalization of SMEs, there is still limited study on the internationalization of FBs in general (Crick, Bradshaw & Chaudhry 2007; Zahra 2003; Graves & Thomas 2003; Casil- las & Acedo 2005; Jones, Coviello & Tang 2011). To date, specifically, there has been limited study in regards to what influences the internationalization of FSMEs (Graves & Thomas 2008: 154). In previous studies, earlier focus was paid on comparing FB with non-FB (e.g. Graves & Thomas 2004; 2006; Fernández &

Nieto 2005; Menéndez-Requejo 2005; Crick, Bradshaw & Chaudhry 2006; Pinho 2007). The emphasis then relatively moved to family ownership and internationalization (Zahra 2003); types of ownership and internationalization (Fernández &

Nieto 2006); and the level of ownership and internationalization (Sciascia et al.

2012). Some studies report that ownership influences internationalization negatively (Fernández & Nieto 2005; 2006).

Drawing from the stewardship perspective, Zahra's (2003) study states that due to altruism, the individual and interactive effects of ownership and involvement are positively associated with internationalization. This positive relationship was attributed to the specific capabilities that the family ownership brings to the internationalization process (e.g. Zahra 2003). A more recent study on the internationalization of FB in general has argued that the conflicting results may emanate from not taking the family ownership and family involvement in management aspect

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separately and identifying its effect on the internationalization of the FB (e.g. Sci- ascia et al. 2012).

In small business context, one can expect stewardship orientation that might have implications towards internationalization of FSMEs (Miller et al. 2008). The main purpose of this study is to find out, whether FSMEs with stewardship orientation have different levels of influence on internationalization when coupled with family commitment culture, strategic flexibility of TMT and industry experience of TMT. In his study on the international expansion of U.S. manufacturing FBs, Zahra (2003: 495-496) argues that owner mangers are likely to act as good stew- ards of the firm's resources during internationalization. We can then deduce that depending on the level of their stewardship orientation family firms may expand abroad if coupled with strategic flexibility of TMT.

Ownership provides managers the power to make decisions speedily about the level and scope of their firm's operation (Zahra 2003). Zahra (2003) also suggests that future researchers need to consider other dimensions of stewardship perspective besides altruism and establish their impact on the family firm's strategic choices. Similarly, Graves and Thomas (2008) point out the need to consider stewardship perspective in the study of FSME internationalization. In line with these previous studies, this study suggests the use of three dimensions of stewardship as proposed by Miller et al. (2008: 53–57) to study FSME internationalization. The three dimensions can be manifested in a care for continuity of the business (long-term orientation), building community of employees (employee orientation), and maintaining consistency in customer relationship (customer orientation).

More recently, FB internationalization literature is increasingly examining the role of intangible resources that may accrue to FSMEs due to family ownership such as the role of entrepreneurship orientation of family firms (Thomas &

Graves 2005), family related factors (Claver et al. 2009; Segaro 2012) networks (Basly 2007; Kontinen & Ojala 2011b, c), social capital (Kontinen & Ojala 2011a; Segaro 2012) in the internationalization of FSMEs. While Zahra (2003) finds that family ownership is positively related to internationalization, Fernandéz and Nieto (2006) find negative relationship between family ownership and internationalization. Furthermore, Sciascia et al. (2012) find inverted curvilinear relationship between the level of ownership and degree of internationalization. But Sciascia et al. (2012) also find that a higher level of involvement in management was positively related to the degree of internationalization. These mixed results suggest to us in relation to ownership to carefully examine the "softer dimension"

of ownership, by putting back the family into FB research (Dyer & Dyer 2009)

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and thus examine the role of family commitment culture in FSME internationalization.

According to the stagnation view (Miller et al. 2008), FSMEs might be perceived to be locally embedded and risk averse (e.g. Kets de Vries, 1993; Kontinen &

Ojala, 2011). These assertions, however, do only partially explain FB's behavior as there are some FSMEs that exhibit entrepreneurial behavior in seeking out and recognizing opportunities not only in the domestic market but also in the international market due to their stewardship behavior (Miller et al. 2008; Eddleston et al. 2012). This is because FSMEs are not homogenous (Sharma 2003: 2;

Westhead & Howorth 2007: 407), exhibiting differences in their degree of internationalization (Graves 2006). Except some notable theoretical studies that emphasized the role of strategy, culture, management and control (Swinth & Vinton 1993), strategy, general objectives, and company culture (Gallo & Sveen 1991), the role of entrepreneurial orientation in FB internationalization (Thomas &

Graves 2005), recent studies, seem to pay little attention to the role of organizational culture in FB. In addition, they seem to pay little attention to the role of strategic flexibility of top management having diverse functional background in FB. Thus, when we seek to examine the role ownership, we may need to move towards exploring the cultural aspects in internationalization of FSMEs, for example, by exploring the role of "family commitment culture" in internationalization of FSMEs. In relation to governance, the aim of this study is to explore the role of stewardship orientation in FSME internationalization.

As the family system interacts with business system, the stewardship oriented organizational culture has been found in previous literature to moderate family commitment - strategic flexibility relationship (Zahra et al. 2008). Strategic flexibility refers to the ability to pursue new opportunities and respond to threats in the competitive environment (Zahra et al. 2008), which may contribute to internationalization of FSMEs. I argue in this dissertation that one may relatively expect high stewardship orientation in small business context that may in turn have positive association with FSME internationalization when coupled with strategic flexibility of TMT.

It would thus be important to take into account how FSMEs develop and renew their strategy by having strategically flexible TMTs. One possibility is that incor- porating the succeeding generation in the top management team may trigger strategic renewal initiatives (Hall 2003) that bring in a level of strategic flexibility needed for the family firm. As part of the strategic renewal initiatives pursued by the succeeding generation (e.g. Dess et al. 2003), internationalization of the FSME may occur. Alternatively, if succession has already taken place in a family

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firm and if the family firm has taken the necessary preparation to groom family successors, the industry knowledge of the family successor (e.g. Royer, Simons, Boyd, Rafferty 2008) may facilitate international expansion of FSMEs. The next section will present the research question and research objectives of this study.

1.3 Research Question and Research Objectives

Due to the potential differences in business objectives between FBs and non-FBs', FBs may vary in their overall business approach from non-FBs (Graves 2006).

FBs may seek to pursue non-financial family objectives such as providing employment for the family, protection of the family wealth, and to pass the business to the next generation (Westhead & Howorth 2006). Sirmon and Hitt (2003) point out that FB's uniqueness arises from the integration of the family and the business life. The integration of the family and the business life creates several salient and unique characteristics. As mentioned earlier, Sirmon and Hitt (2003) suggest five unique characteristics that can differentiate FBs from non-FBs: human capital, social capital, survivability capital, patient capital, and governance structures.

They contend that resources by themselves will not produce sustainable competitive advantage but that resources should be managed appropriately to produce value. These five major resources can also be categorized as providing FSMEs with an entrepreneurial spirit.

In FB literature, FB's business objective may include non-economic social goals and more precisely, it may include family related objectives such as providing employment for family members and conserving wealth for intergenerational transfer or maintaining social emotional wealth of the FB (e.g. Gomez-Mejia, Makri & Kintana 2010). Besides business objectives that might be the same or different between family and non-FSMEs, FBs are found to be relatively more long-term oriented, and different in their risk taking propensities and also their propensity to be more locally anchored (e.g. Graves 2006; 2008; Miller et al.

2008). Though FBs may have a limitation in terms of human, financial, and tech- nological resources, their intangible assets such as brands, organizational culture and reputation may provide them with competitive advantage (Menéndez- Requejo 2005: 122). Thus, FBs can also become more committed to their business as not only their financial but also their social resources such as social capital and reputation are tied up and are dependent upon the success of the business much more directly than non-FBs (e.g. Labaki 2007; Segaro 2009a,b, 2012).

In FSME internationalization literature, what contributes to FSMEs to have a higher level of internationalization while others lag behind, has not received

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enough attention (Graves & Thomas 2006; 2008). In the extant FB literature, FSMEs are found to internationalize their business after consolidating their position in their domestic market incrementally (e.g. Gallo & Pont 1996; Yeung 1999;

Fernandéz & Nieto 2005; 2006; Graves & Thomas 2006; 2008). More specifically, the first generation can be entrepreneurial but initially with a primary emphasis to perform, consolidate, and survive in their domestic market (e.g. Okoroafo 1999: 146). Thus, study aims to examine ownership, TMT, and governance related factors with emphasis on organizational culture on internationalization in FSMEs. Among those FSMEs who have internationalized their business, why do some manage to have a higher level of internationalization while others do not?

More precisely, what are the factors that contribute to differences in the degree of their internationalization? According to the aim of this study to examine ownership, TMT, and governance related factors with emphasis on organizational culture in the FSME context and specifically looking at their effect on the degree of internationalization, the research question of this study can be stated as: what aspects typical to FSMEs in relation to ownership, top management team and governance determine FSMEs internationalization? Therefore, main research objectives are as follows:

1. To contribute to internationalization of FSMEs literature by looking at ownership, governance and TMT related factors.

Subsequently, in relation to ownership, it focuses on the organizational culture typical to FSMEs. Based on FB literature review, it focuses on the softer dimensions of ownership by taking into account organization culture and family based behavior, such as family commitment culture (e.g. Zahra et al. 2008). This study aims to contribute to organizational culture literature. By conceptualizing stewardship orientation (e.g. Miller et al. 2008) and adapting it to internationalization study, it aims to contribute to governance literature. By focusing on TMT related factors such as strategic flexibility of TMT (e.g. Zahra et al. 2008) and TMT industry experience (e.g. Barringer & Bluedorn 1999), it contributes to strategic management and more specifically to upper echelon literature. In general, it contributes to internationalization of FSMEs literature by focusing on ownership, governance, and TMT related factors.

2. To explore the relationship between ownership specific factor such as family commitment culture by focusing on the softer dimension of ownership and degree of internationalization.

In ownership, the main emphasis is not on ownership level (e.g. Zahra 2003; Fer- nández & Nieto 2006; Sciascia et al. 2012), but rather on the softer dimension related to ownership. More specifically, the focus of this study is on how the level

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of ownership could actually be looked at on a deeper level. By exploring ownership not on the basis of percentage of ownership or types of ownership but by taking an organizational cultural perspective that emanates from family ownership and involvement in management, this study examines the role of family commitment culture of FSMEs. By infusing their values into the family business (FB), family commitment culture may further be embraced throughout the organization, resulting in the continuous formation and maintnance of the organization culture of the FSME (Zahra et al. 2008). This study attempts to propose the need to investigate on how the level of family involvement in ownership and management could be explored by taking an organizational culture perspective by focusing on family commitment culture in FSMEs.

3. To explore the role of stewardship orientation, a governance related behavior, on the internationalization of FSMEs.

In FB literature, stewardship perspective is increasingly used to examine performance variability among FBs (e.g. Miller & Le Breton-Miller 2005; Eddleston &

Kellermann 2007; Miller et al. 2008). In internationalization studies, stewardship perspective has been used to explain, for instance, why family ownership is related positively to internationalization (e.g. Zahra 2003), positive relationship between moderate levels of family ownership and internationalization (e.g. Sciascia et al. 2012), but to date, it has not been empirically explored as a construct in internationalization of the FB literature. More recently, a study by Eddleston et al.

(2012) finds that stewardship culture differentiates entrepreneurial behavior among FBs. Thus, this study aims to explore the role of stewardship orientation by conceptualizing it as employee orientation, customer orientation, and long- term orientation (adapted from Miller et al. 2008) on internationalization of FSMEs.

4. To investigate the role of top management team (TMT) related factors such TMT strategic flexibility and TMT industry experience on the degree of internationalization.

Strategic flexibility refers to the degree to which firms recognize opportunity and threat within the competitive environment of a firm (Barringer & Bluedorn 1999;

Zahra et al. 2008). A TMT that is comprised of top management team members from different functional background is more likely to exhibit strategic flexibility.

This is because the differences in their functional background will likely compen- sate the potential adverse effects of commitment entrapment (Chrico 2007), or lateral rigidity (Luostarinen 1980/1979). As top management team members, drawing from the upper echelon theory, are mostly involved in strategic decision- making process, the strategic flexibility of TMT is a construct that needs to be

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explored in relation to its association with internationalization of FSMEs. In addition, the top management managerial capability (Graves & Thomas 2006) has been explored in comparing FSMEs with non-FSMEs. By taking the industry experience of top management team, and exploring its impact on internationalization, we may be able to identify the variance in internationalization among FSMEs. The following section will provide the key terms of this study.

1.4 Definitions of Key Terms

The main focus of this study is on the role of ownership, governance, top management team (TMT) on internationalization. At the outset, regarding the definition of FBs, it would be important to point out that there have been several different definitions in FB literature (Litz 1995; Sharma et al. 1997; Westhead & Cowl- ing 1998; Sharma 2004; Chrisman, Chua & Sharma 2005). Table 1 provides the list, definition, and sources of the key terms of this study.

The involvement of the family in ownership and management in FBs is increasingly used to categorize whether a firm is a FB or not (e.g. Fernández & Nieto 2006). For conceptualization of stewardship orientation, this study relies on Mil- ler et al. 2008 conceptualization of stewardship. It adapts it to internationalization of FSMEs context and defines it to enable empirical assessment of the stewardship orientation construct in FBs.

1.5 Positioning and Contribution of the Study

This section first provides the theoretical positioning of this study. This study utilizes internationalization theories pertinent to FSME internationalization (e.g.

incremental approach (e.g. Johanson & Wiedersheim 1975; Johanson & Vahlne 1977; 1990; Graves & Thomas 2008), network approach (e.g. Coviello & Munro 1997; Yeung 1999; 2000; Johanson & Vahlne 2003; 2009; Kontinen & Ojala 2011b), and international entrepreneurship in general (e.g. Bell et al. 2008;

Thomas & Graves 2005; Graves & Thomas 2008; Sciascia et al. 2012; Kontinen

& Ojala 2011b). The main theoretical underpinnings are presented in Figure 1.

This study focuses on international entrepreneurship and FSME context. It relies on the resources based theory (RBT) of the firm in achieving competitive advantage (e.g. Wernerfelt 1984; 1995; Barney 1986; 1991; Peteraf 1993; Foss 1998; Barney, Wright & Ketchen 2001; Peng 2001; Barney et al. 2011; Helfat &

Winter 2011). More specifically, this study utilizes resource-based theory in the

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FB context that may lead to competitive advantage/disadvantage (e.g. Hab- bershon & Williams 1999; Habbershon, Williams & MacMillan 2003; Zahra, Hayton & Salvato 2004; Carney 2005; Klein, Astrachan & Smyrnois 2005;

Chrisman et al. 2005; Eddleston, Kellermanns & Sarathy 2008; Rutherford, Ku- ratko & Holt 2008).

Table 1. Definitions of key terms of this study

Key term Definition Sources

Family SME (FSME)

A family business can be conceptualized as a small and medium-sized enterprise that belongs to a family with one or more family owners in managerial positions. In addition, the firm must view itself as a FB.

Fernández & Nieto 2006: 345; Casillas, Moreno & Barbero, 2010: 9).

Small and medium sized enterprises (SMEs)

Companies classified as SMEs are those companies having fewer than 250 employees and having an annual turnover of up to 50 million euro, or a balance sheet total of no more than 43 million Euros.

European Commis- sion 2005

Internationalization Can be defined as the process of adapting firms’

operations (strategy, structure, resource, etc.) to international environment

Calof & Beamish 1995: 116 Stewardship orien-

tation

Can be defined as employee orientation, customer orientation and long-term orientation in FSMEs

adapted from Mil- ler et al. 2008 Familiness Can be defined as the summation of the resources

and capabilities in a given FB.

Habbershon &

Williams 1999: 11 Organizational

culture

can be defined as the pattern of basic assumptions that a given group has invented, discovered, or developed in learning to cope with its problems of external adaptation and internal integration, a pattern of assumptions that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems

Schein 1995: 222

Organizational commitment

defines commitment as an affective attachment to the goals and values of an organization, to one’s role in relation to goals and organization for its own sake

Buchanan 1974:

533

Family commitment culture

The extent to which the values of the business and family overlap, as well as the family’s commitment to their business

Astrachan, Klein, &

Smyrnios, 2002;

Klein, Astrachan, &

Smyrnios, 2005;

Zahra et al. 2008:

1042 Strategic flexibility

of TMT

The degree to which a functionally diverse top management is willing to change its strategy in response to opportunities, threats, and changes in the environment

Barringer & Blue- dorn 1999; Zahra et al. 2008; Boeker &

Wiltbank 2005

The study theoretically explores stewardship theory, one of the governance theories, and empirically explores stewardship orientation, which is expected to shed more light in our understanding of stewardship orientation (Zahra et al. 2008) and its relationship with internationalization. The study empirically investigates the

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softer dimension of ownership “family commitment culture”. Theoretically, organizational culture and organizational commitment theories are incorporated to examine family commitment culture in FSMEs. In addition, this study covers the upper echelon theory (e.g. Hambrick & Mason 1984; Finkelstein & Hambrick 1990; Hambrick 1994; 2007; Tihanyi et al. 2000; Reuber & Fisher 2002; Carpen- ter et al. 2004; Ensley & Person 2005; Kellermanns & Floyd 2005) as it deals with top management team (TMT) issues such as TMT industrial experience and strategic flexibility of TMT. It will empirically explore TMT industrial experience and strategic flexibility of TMT. Stewardship orientation and family commitment culture can be taken as culture/orientations (see Figure 1).

Key: RBT= Resources Based Theory; Gov = Governance; SO= Stewardship Orientation; TMT = top management team (upper echelon; strategic management); sfTMT= Strategic Flexibility of TMT; TMTie= Industry experience of top management team; OCU= Organizational Culture; OCO= Organizational Commitment; FCC = Family Commitment Culture

Figure 1. Theoretical positioning of the study

Examining these typical behaviors FSMEs will help us to understand the internationalization of FSME. In order to discuss the positioning of this study, it will be important to point out what were emphasized and what were the findings in earli-

TMTie

III. TMT Family SME Context

International Entrepreneurship II. GOV ^SO

sfTMT RBT

OCU ^FCC OCO I. OWNERSHIP

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er studies in internationalization of FB (see Table 2). In the extant FB internationalization, early studies were theoretical in nature. Gallo and Sveen (1991) focused on influencing/restraining factors for internationalization, which are deemed to affect a company’ ability to change such as 1) strategy and general objectives; 2) organizational structure and systems; 3) company culture; 4) development stages of the company; and 5) family international characteristics. Similarly, Swinth and Vinton (1993) pointed out that the strategic advantage of FBs in international joint ventures (IJVs) that is their commonalities extend across several key areas of business: strategy, control, management and culture. Table 2 shows the focus of previous studies.

Table 2. Focus of past studies on the internationalization of FSMEs

Focus of Previous Studies Sources

Internationali- zation Behav- ior and Inter- nationalization Strategies

Facilitating/Constraining factors;

motivation/propensity/intensity to internationalize

Gallo & Sveen 1991; Swinth & Vinton 1993; Okoroafo 1999; Graves & Thomas 2004;Crick, Bradshaw & Chaudhry 2006;

Larimo 2011

International entrepreneurship (risk perception and opportunity recognition and role of internet)

Davis & Harveston 2000; Thomas & Graves 2005; Casillas & Acedo, 2005; Claver, Rienda & Quer (2008); Sciascia et al. 2012;

Kontinen & Ojala 2011b

International pathways, entry modes, psychic distance, and international commitment

Pinho 2007;Claver, Rienda & Quer 2007;

2008; 2009; Graves & Thomas (2008);

Kontinen & Ojala(2010b Kontinen & Ojala 2011a,b

Resources and Capabilities

Organizational culture Gallo & Sveen 1991; Swinth & Vinton 1993; Segaro 2012

Managerial capabilities and organizational knowledge

Casillas & Acedo 2005;Graves & Thomas 2006; Basly 2007; Segaro 2012

Survivability capital, patient capital Graves & Thomas 2008; Segaro 2012

Networks and social capital Yeung 1999; Kontinen & Ojala 2011a,b,c;

Segaro 2012

Ownership and Management

Ownership (family ownership, types of ownership, levels of ownership)

Gallo & Sveen 1991; Swinth & Vinton 1993; Zahra 2003; Casillas & Acedo 2005;

Fernández & Nieto 2005; 2006; George, Wiklund & Zahra 2005; Sciascia et al. 2012;

Segaro 2012

Generational Stages Gallo & Pont (1996); Okoroafo 1999; Yeung 2000; Menéndez-Requejo 2005; Claver, Rienda & Quer 2007; Segaro 2012

Socio-emotional wealth Gomez-Mejia, Makri & Kintana (2010)

Governance, Strategic leadership/top management

Swinth & Vinton ; Zahra (2003);George et al. (2005); Graves & Thomas 2008; Calabró, Mussolino & Huse 2009; Segaro 2012

On strategy, Gallo and Sveen (1991: 183) pointed out that on one hand, it could become a source of rigidity when FBs often follow strategies that are narrowly focused on customer needs in local markets. On the other hand, as a facilitating factor, strategy can become a long-term character to a typical FB. Furthermore Gallo and Sveen (1991) argued that FBs are more likely to pursue opportunities

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with potential for long-term stable outcomes because they value stability over dynamic growth risk strategies. In a theoretical paper, Segaro (2012) also explores the role of strategic flexibility in the internationalization of FSMEs. In their comparison of the managerial capability of FB with non-FB, Graves and Thomas (2006) find that FBs internationalize with smaller top management team. Graves and Thomas (2006) further point out that despite having less managerial capabilities when compared to non-FBs, FBs were still able to achieve a high degree of internationalization. One possible reason they provide is that FBs might utilize their limited managerial capabilities more effectively in managing and leveraging their resources compared to their nonfamily counterparts. Larimo (2011), in his study regarding the export behavior, growth and performance of SMEs when comparing FBs with non-FBs, finds that both family and non-FBs motivation for expansion abroad emanated from management’s interest in international expansion.

Empirical studies have not yet examined what types of top management team facilitate or constrain internationalization of FSMEs. To date, there seems to be little attention paid to the role of strategic flexibility of top management team in FSMEs. To my knowledge, this is one of the first studies to quantitatively explore the role of strategic flexibility of TMT that is top management team composed of heterogeneous functional background on internationalization in FSME context.

On ownership, FB literature on internationalization has increasingly looked at the role of family ownership (e.g. Zahra 2003), types of ownership (e.g. Fernández &

Nieto 2006), levels of ownership (e.g. Sciascia et al. 2012). So far, the role of the

“softer dimension” of ownership namely organizational culture and internationalization in FBs has not received enough attention. Although, the role of organizational culture has been explored theoretically in FB internationalization literature (e.g. Gallo & Sveen 1991; Kets de Vries 1993; Swinth & Vinton 1993; Segaro 2012) as one of the key facilitating/restricting factors, it has not been adequately explored empirically.

Regarding organizational culture, Gallo and Sven (1991: 186) point out that if a family places excessive emphasis on certain part of the culture, it could become a restraining force on internationalization. Similarly, Swinth and Vinton (1993) point out that FBs can gain strategic advantage by building management systems based on trust and loyalty, a potential inherent characteristics in many (though not all families). In one of the first empirical study, Gallo and Pont (1996) point out that the strategic orientation of FB’s in targeting their product for the local market, when coupled with inadequate level of technology seems to be the principal cause of the perception of rigidity towards internationalization. Kets de Vries